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The phone number is clearly listed on its site, yet no one answers when I call.

It is a complaint I have heard from Israeli nonprofits and one that I recently verified — repeatedly. So the question remains, how can someone get in touch with Israel’s Registrar of Charities [Rasham Ha'amutot]?

Obtaining government funding seems to be every nonprofit’s goal, at least in Israel. I have heard countless lecturers, founders, and foundation representatives preach the Darwinian virtues of incorporating government grants into an Israeli charity’s fundraising strategy; after all, the nonprofit is servicing the Israeli public. It is to the Government’s benefit – if not its outright duty – to ensure that this charity’s program continues to exist

Not bad on paper. In practice, however, these Israeli government grants can sometimes be more trouble than they are worth.

For the purpose of this post, as a banker I would like to restrict my focus on the budgetary challenges associated with these grants. Specifically, the two disadvantages that arise because grant monies are dispersed only after expenses are incurred.

A charitable foundation’s worst fear is that its grant will be used for non-charitable purposes. The U.S. Internal Revenue Service (IRS) stresses that this risk increases drastically when dealing with foreign grant making and expenditures.[1] The U.S. Department of the Treasury released its third and final version of its “Anti-Terrorist Financing Guidelines: Voluntary Best Practices for U.S. Based Charities” (VBP) in September of 2006 to help charities implement procedures that will reduce the risk of unintended diversions of funds to terrorist causes.

A recent New York Times’ article attacked American charities that help build communities in Israel’s West Bank and IRS policy that enables donations to these organizations to be tax-deductable. As with any piece about the Palestinian-Israeli conflict, many people have been quick to attack or defend the veracity of the article.

To nonprofit organizations, the value of the article is not the accuracy of the authors’ claims, but rather the article’s insight into current concerns and trends influencing the nonprofit sector. These can serve as warnings and guidelines to US charities that operate internationally.

Nonprofit organizations have yet another hurdle to cross when applying for tax-exempt status. The Department of Homeland Security — the U.S. Government Department that oversees counter-terrorism, border security, disaster response, and immigration — is also an integral part of the tax-exempt approval process.

A recent study in Israel advocates the same theory, claiming that Israel’s poor standing in charitable-giving is directly related to the Israeli Government’s comparatively lower tax-deductible incentives.

However, by placing the blame squarely on the Israeli Government – instead of the shoulders of the nonprofit organizations operating in Israel – these researchers are causing the Israeli Nonprofit Sector to leave a huge well of potential-donors untapped. The charities in Israel are failing to engage would-be donors, and it is this lost opportunity that should really be addressed.

Israeli charities (amutot in Hebrew) rely on donations from overseas – no secret there. Many foreign-based charities choose to create an American based nonprofit, more commonly referred to as a “Friends of” organization so donations can be tax-deductible vis-a-vis the American Federal Government. (In a previous post, I spoke about IRS trends when a “Friends of Organization” is applying for tax-exempt status.)

However, it could be that establishing a “Friends of” organization is not in your charity’s best interest. The following are some considerations that elaborate on: Why not to raise funds through a U.S. registered “Friends of” Organization?

Too many times the IRS has hinted at the direction to which it is heading, with people taking little notice. Well, in quiet screams, the IRS is doing it again, with the release of their interim report: “IRS Exempt Organizations – Colleges and Universities Compliance Project.”

I preface that I have not yet read the report, but I will. And here’s why I think you should too:

International organizations have been highly successful in raising funds from the United States through U.S. based charities commonly referred to as “Friends of” organizations. These charities are registered in the States and have 501(c)3 tax-exempt status and, thus, allowing these donations to these essentially foreign organizations to be tax-deductible.

As you can imagine, many international causes consider a “Friends of” organization as a crucial step in their fundraising strategy.

I’ve Moved!

After 9 years in banking, I have decided it was time for my next challenge and have opened my own company that offers outsourced CFO services to local & international nonprofits and small businesses operating in Israel.

Visit my new site to discover how your organization can increase its efficiency and relieve stress by outsourcing critical financial tasks – either on an ongoing or per-project basis: Fogel CFO & Management Services